Monday, June 8, 2009

Systemic Racism In The Housing Market: How Reverse Redlining Works

During the past couple of weeks, I read several articles that really made me think a lot about racial inequality in our country.

One article that really caught my attention appeared in the New York Times.

I like the Times article, "Bank Accused of Pushing Mortgage Deals on Blacks," because it sheds light on a key, yet rarely spoken, reason behind the collapse of the nation's housing market in cities such as Detroit, Cleveland, and Gary, Indiana.

Though they don't name it, the problem identified by the Times is systemic racism.

It is really rare for me to find in the mainstream media – unless I am looking especially hard – reporting that focuses on how race continues to shape outcomes and opportunities in America.

But, before I dive into the Times article, I have to write a little about my home town, the Motor City.

How bad are things in Detroit?

A January 29, 2009 article in the Chicago Tribune reported that the median price of a home sold in Detroit last December was $7,500.

Yeah, $7,500! That is not a typo.

For those who may not know what the median means, let me put it another way: half the homes being sold in the "Big D" sell for less than $7,500.

Not $75,000 – that's seven thousand five hundred dollars, far below the asking price for the lowest-priced car on the new-car market.

"Detroit has been quietly slipping into social and economic crisis for 40 years," writes the author of the article, Tim Jones. "One-third of the population lives in poverty, and almost 50 percent of children are in poverty, according to data from the Detroit-Area Community Indicators System. Median household income has dropped 24 percent since 2000, according to the Census Bureau."

The City of Detroit, which has lost half of its population over the last 50 years, is deeply in debt, has a gutted tax base, is deceptively large (covering 139 square miles, you could fit Manhattan, Boston and San Francisco inside the city borders), and is completely dependent on a deeply troubled automobile industry.

The last thing Detroit needed was predatory lenders rooming its struggling neighborhoods singling out blacks for high-interests subprime loans.

According to the Times article, predatory lenders roomed the neighborhoods of Baltimore, Maryland. They found plenty of victims.

The City of Baltimore has launched a federal lawsuit against banking giant, Wells Fargo, for a systematic pattern of predatory lending in black communities which has contributed to thousands of homes sliding into foreclosure costing the city millions in tax dollars and city services.

A former loan officer for Wells Fargo, Beth Jacobson, has spilled the beans.

Once the banks top-producing subprime loan officer nationally, "Wells Fargo, Ms. Jacobson [who is white] said in an interview, saw the black community as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation's home-owning mania. Loan officers, she said, pushed customers who could have qualified for prime loans into subprime mortgages."

According to the article, her testimony, along with that of another former loan officer, Tony Paschal [who is black], "provide the first detailed accusations of deliberate racial steering into subprimes by one of the nation's top banks."

According to Paschal, in 2001, Wells Fargo created a special unit to push subprime loans on black customers, particularly those living in Baltimore, southeast Washington and Prince George's County, Md.

Paschal said in his affidavit, "They referred to subprime loans made in minority communities as ghetto loans and minority customers as 'those people have bad credit', 'those people don't pay their bills' and 'mud people.' "

This form of reverse redlining, that is specifically marketing black (and Latino) communities for expensive and overburdening loans is not confined to Wells Fargo. The N.A.A.C.P. has filed a class-action lawsuit charging systematic racial discrimination by more than a dozen banks.

Baltimore is not as economically and socially depressed as Detroit. But, like Detroit, it suffers from the consequences of decades of White Flight, de-industrialization, and systemic racism.

The New York Times article should be mandatory reading for policy makers in Washington and should help put to rest the idea that the subprime meltdown is primarily the result of greed and mismanagement by bankers and mortgage companies on Wall Street.

1 comment:

I'm so tired of hearing how this whole problem is really the fault of Americans who "spent beyond their means" and "shouldn't have taken out mortgages they couldn't afford." Hopefully articles/blogs like this will help to place the onus on these lenders, the whole economic system, the society and its culture rather than the victims who were just trying to live the American Dream (which has been shoved down our throats since we were old enough to open our mouths).